Friday, May 18, 2007

More Chinks in the Armor
I heard today that tighter lending standards in the Commercial Mortgage Backed Securities (CMBS) market are causing some TIC deals with mezzanine debt not to close. This could roil the TIC industry. Most TIC deals are financed with conduit financing - i.e. loans that are sold shortly after they are made to large firms that then package the loans into mortgage backed securities. The packagers are getting tougher on the loans on properties that were closed with mezzanine debt.

This affects TIC sponsors that use the mezzanine debt because they are having a hard time raising equity. TIC sponsors will start to look at portfolio lenders - i.e. insurance companies that do not sell the loans - despite the higher interest rates portfolio lenders charge if the conduit lenders prohibit mezzanine debt on properties. This is a development that may change the TIC landscape. TIC sponsors need to find good deals where they can raise equity, not marginal deals that are hard to sell but that fit a particular model. The mezz issue then goes away. I don't know the spreads between conduit and portfolio loans but a portfolio lender may be easier to work with for a TIC sponsor, especially if a property is going to be sold early or held longer than anticipated.

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